271: Encore Episode – Freemium

Welcome to another episode of The Startup Chat with Steli and Hiten. This week we’re talking about the pros and cons of the Freemium pricing model in startups.   

This Week’s Updates:

Steli is getting ready to go on a 6 week trip to Europe.  Planning how to get stuff done on the trip and stay productive.

Hiten is working on moving on from KISSmetrics and focusing on building out new software for Crazy Egg.  In this transition he’s seeing the benefit of using chat products like Slack instead of email.

Today’s Topic:  Freemium

Hiten says you must start a SaaS product with a free offering.  Steli doesn’t agree, and that’s why Close.io does not have a free pricing model.

In the B2B space it’s important to set the expectation of paying up front instead of allowing users in the door without charging.  Unless you’re a massive scale product like Dropbox or Evernote it just doesn’t help move the business along.

However, if you are thoughtful about free products, and don’t just throw something together this can be a successful model.  Include limiting functionality or users on top of a core offering to prepare free customers for paying for the fuller featured product down the line.

Consider freemium as a part of your marketing plan.  When a paying customer doesn’t convert after a trial they’re gone from your funnel.  Free customers at the top of the funnel will give you more chances to convert them into paying customers over the life of their use of your app.

Hiten: “The fastest growing SaaS companies all offer free plans”

The question of whether to start a new company with a freemium offering is a tough call. Over the long term it will increase revenue, but may take longer to build up user base with those free users.

This Week’s Tips:

Steli – Take a snapshot of who you were and what you were thinking a year ago.  If you look back and don’t think you were an idiot last year there’s something wrong!

Hiten – From the book “5 Elements of Effective Thinking” – Whatever you think, think the opposite.

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